CBN Monetary Policy Committee Signals Concerns Over Election-Related Fiscal Spending
Members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) have expressed significant concerns regarding the implications of election-related fiscal spending as the nation approaches the 2027 general elections. They warn that increased political expenditures could jeopardize recent progress in controlling inflation, as excess liquidity stemming from these activities poses a risk to the effectiveness of monetary policy.
This perspective emerged from personal statements made by MPC members after the committee’s May meeting, indicating a shift in focus from external inflationary pressures to domestic fiscal risks, especially as inflation rates gradually decline.
The MPC unanimously decided to keep the Monetary Policy Rate (MPR) steady at 27.5%. However, members underscored the importance of a stringent monetary policy to mitigate potential inflationary impacts from anticipated pre-election spending across various government levels.
CBN Governor Olayemi Cardoso emphasized that surging fiscal liquidity from rising oil revenues, coupled with political expenditures, could complicate the bank’s efforts to maintain price stability. He cautioned that oil prices surpassing budget predictions could lead to unexpected revenues and enhanced Federal Account Allocation Committee (FAAC) distributions, while local election-related spending could further inject liquidity into the economy. “It’s crucial that we actively manage these channels to prevent amplifying the pressures we are striving to control,” he remarked.
This sentiment was echoed by Emem Usoro, Deputy Governor for Operations, who acknowledged that while the inflation forecast shows improvement, several risks remain that could tilt the balance towards inflation. She noted that domestic disinflation might be disrupted by new food price shocks, energy cost fluctuations, and pre-election liquidity pressures. On the external front, she indicated that ongoing shifts in global yields and investor sentiment could also impact capital flows, suggesting that premature easing of policy could hinder foreign exchange confidence.
Adding to the discourse, Deputy Governor of the Directorate General of Corporate Services, Mohamed Sani Abdullahi, identified election-related fiscal expansion as a medium-term macroeconomic risk. He pointed out that while exchange rates have shown stability, risks from import inflation due to energy prices and geopolitical tensions remain critical, compounded by the uncertainties linked to election-related spending. Abdullahi reaffirmed the importance of sustaining long-term macroeconomic stability in light of these challenges.
Looking ahead, Abdullahi underscored the necessity of balancing disinflation, external stability, and the potential constraints of fiscal injections related to the upcoming elections. MPC member Murtala Thabo Sagagi concurred, describing election-related spending as a fiscal challenge that necessitates enhanced coordination between monetary and fiscal authorities, rather than relying solely on monetary interventions.
Despite the fiscal challenges posed by the election period, Sagagi stated that Nigeria’s improved macroeconomic buffers suggest these risks are manageable without a shift in policy. He called for a collective effort in maintaining fiscal discipline, warning against the inflationary pressures that could arise from increased spending during election cycles. Additionally, he stressed the importance of ongoing collaboration between fiscal and monetary authorities to promote responsible spending practices and counter-cyclical measures.
Bandere Amoo reiterated concerns regarding election-related fiscal risks, arguing that these factors could impede Nigeria’s disinflationary progress. He expressed a cautiously optimistic outlook for the economy, expecting inflation to moderate over the medium term, aided by improvements in exchange rate stability and ongoing reforms. Nonetheless, he acknowledged the influence of global geopolitical events, energy price volatility, domestic supply constraints, and fiscal pressures tied to the upcoming general elections as potential upside risks to inflation.
